History of a bank: building the Beijing - Hankou railway on the eve of the 20th century

Apr 8, 2013, 13:00 PM
Title : History of a bank: building the Beijing - Hankou railway on the eve of the 20th century
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In 'History of a bank' BNP Paribas Fortis presents stories and anecdotes about various events in our economic and social history seen through the eyes of the bank and the organisations that preceded it. The first article called 'An alien at the bank' and devoted to the evolution of the role of women on the workfloor, was published on 8 March 2013 on the occasion of the International Women's Day.

This second article focuses on the role of BNP Paribas in the development of Chinese railways at the start of the last century.

At the turn of the 20th century, three banks that were forerunners of the BNP Paribas group organised the financing of one of the biggest public works building projects of the time, the construction of the railway line from Hankou to Beijing, covering a total length of 1,200 kilometres: Société Générale de Belgique (BNP Paribas Fortis), Banque de Paris et des Pays-Bas and Comptoir National d’Escompte de Paris.

The project was entrusted to a subsidiary company, Société d’Etude de Chemins de Fer en Chine – the company for the study of railways in China. The company worked in a complex geopolitical environment, given the situation within China and the pressure exerted by the major Western powers. Despite all kinds of difficulties, the railway was completed in seven years (1898-1905).

In 1895, the defeat of China in the Sino-Japanese War convinced elite senior officials that if China was to survive as a sovereign state, it needed to modernise. And the first step in this modernisation process was the construction of a rail network. The most important strategic project was the line to be built between Beijing and Hankou, on the Yangtze River. In fact, the great rivers of China run from east to west, and a north-south route was essential for trade, particularly in foodstuffs such as the rice and sorghum produced in the fertile plains of the south.

However, the Chinese authorities had neither the expertise nor the capital needed to build the railway. They had no choice but to call upon the resources of the West. But they distrusted the great powers France, Great Britain, Germany and the United States. As regards France in particular, its alliance with Russia gave rise to fears that, in the event of a Sino-Russian conflict, it would act against China.

So the Chinese wanted to do business with a country that was prepared to grant ‘disinterested cooperation’ or at least, that would be less prone to take advantage of the construction of the railway to gain economic or territorial concessions. And that was Belgium. In November 1896, the first diplomatic contacts took place between the imperial government and the Belgian ambassador in Beijing. The country’s leading bank, the Société Générale de Belgique, was contacted. But the management was divided as to the line to take, given the size of the sums that needed to be advanced and the geopolitical risks.

It took the pressure brought to bear by King Léopold II (1835-1909), a great advocate of Belgian expansionism, to bring the project to fruition. In late 1896, early 1897, the Société Générale de Belgique reached an agreement with Banque de Paris et des Pays-Bas to share the risks and consequences of the contract. This intervention by Paribas placed the huge potential of French savings at the service of the project. It was agreed that the two banks would share the financing, with two-fifths provided by the Belgian partners and three-fifths by the French, and that orders for equipment, with major repercussions for the industries of the two countries, would be shared equally. On 3 March 1897, the two companies established the Société d’étude de chemins de fer en Chine.

Negotiations and project feasibility studies lasted throughout 1897, involving the intervention, in particular, of the Belgian consul in Hankou, Émile Francqui (1863-1935) and the French consul in Shanghai, Paul Claudel (1868-1955). The negotiations concerned, amongst other things, the guarantee to be offered by the Chinese state to those subscribing the loan. In order to obtain better conditions from the Franco-Belgian consortium, Sheng, inspector-general of the Chinese railways, was negotiating a loan with an American group at the same time… Eventually, however, on 26 June 1898 he signed the contract put forward by Société Générale de Belgique and Paribas. This contract was ratified in August by an imperial decree. The first instalment of the loan was issued in April 1899.

Supervision of the construction work was entrusted to 37-year-old Belgian engineer Jean Jadot (1862-1932) who had already overseen the construction of railways in Belgium and the Nile basin.

As of March 1899, the line was ‘attacked from both ends’ at once, so that by the end of the year, 20 kilometres of railway had been laid in the south and the embankments completed along a 100-kilometre stretch. On the northern section, 60 kilometres of embankments and 10 kilometres of railway were finished.

But in 1900 construction was interrupted for several months by the Boxers war. Moreover, among the victims of this xenophobic, insurrectionary movement were workers building the railway. The rebellion was particularly fierce in the north, between Lu-Kou-Kiao and Fengtai: all the company’s workshops, warehouses and wagons were destroyed and the sleepers stolen. Jadot had to call for weapons for his staff. The situation was less dramatic in the south, where the viceroys ordered that the Europeans be protected. Work continued in this section: in the opinion of the viceroys and consuls, stopping would have given rise to further risks by leaving 15,000 workers idle. However, all the railway officials were also armed.

The 222-kilometre stretch from Sin-yang to Hankou crossed the only steeply sloping region along the route. This is where the basins of the Yellow and the Yangtze Rivers separate. This line was crossed without difficulty in 1901 by means of a single tunnel, 500 metres long.

In January 1902, the Imperial Court travelled along the stretch of railway that had already been built and Jadot spoke of this as 'the most significant event in the history of Chinese railways’. For the very first time, the Dowager Empress Tseu-Hi (1835-1908) agreed to travel by rail. This was also a political event, since the empress was returning to Beijing after the turmoil caused by the Boxer rebellion.

The locomotives crossed the bridge over the Yellow River which, at over 3,000 metres in length, was the only real technical difficulty along the route, in June 1905.

The line was inaugurated on 14 November that year. It covered 1,214 kilometres and included 125 stations. Its construction, which was extremely fast, had cost 200 million gold francs, making this one of the least expensive lines built in China during the first decade of the 20th century. The project had major repercussions for Belgian and French industry since orders for rolling stock, bridges, frames and rails amounted to 54 million. Jean Jadot gained great prestige from the construction of the line, resulting the following year in his appointment as manager of the Société Générale de Belgique in charge of the industry department.

At the same time – and this was not by chance – Société Générale de Belgique established a banking subsidiary in the Middle Kingdom. This new establishment, which dated back to March 1902, was directly linked to the Boxers war. After this, China was in fact forced to pay compensation to various countries whose nationals had suffered because of the insurrection. It was mainly for the purpose of servicing the compensation paid to Belgium or its nationals that Société Générale established the Banque Sino-Belge, which immediately opened its first branch in Shanghai. It dealt with exchange transactions, arbitrage, loans against security, import-export financing, etc. It also issued banknotes denominated in Mexican dollars (money of account widely used in China). From 1904, the turnover of the Sino-Belge progressed so quickly that Société Générale de Belgique increased its capital with the support of the sovereign and other Belgian financial groups. This financial reorganisation enabled Sino-Belge (which was to be renamed Banque Belge pour l'Etranger) to open a second branch in Tientsin and a third in Beijing.

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Contact: historicalarchives@bnpparibasfortis.com

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